BY: Vincent H. Smith

Time and time again, proposals to enact even modest reforms to the heavily subsidized Federal Crop Insurance program have been met with outcries from farm-lobby advocates and some members of Congress who claim that US crop production will be devastated unless subsidies continue to be expanded.

Most recently in November 2015, a provision to reduce subsidies to private crop insurers by a small amount in the Bipartisan Budget Act led to a massive lobbying effort from farm and insurance interests to oppose these cuts.

In a report for R Street, “Limiting premium subsidies for crop insurance,” I utilize data from the USDA to simulate the effects of premium-subsidy caps on the total subsidies and gross income that farms receive.

The only group that would be negatively impacted by a premium-subsidy cap is the crop insurance industry itself.

I find that only about nine percent of farms would receive lower crop insurance premium subsidy payments under a $50,000 premium subsidy cap, and the size of most of those payment reductions would be close to negligible. Even a more substantial premium cap of $10,000 would not affect most farms and, among those farms that were affected, the financial impacts would be manageable for nearly all of them.

At the end of the day, the only group that would be negatively impacted by a premium-subsidy cap is the crop insurance industry itself, which could easily absorb an estimated reduction in profits of $300 million per year. While members of Congress claim that they are looking out for the best interests of farmers in opposing premium-subsidy caps, the Federal Crop Insurance program remains a massive handout to crop insurance companies that are already highly profitable. Premium-subsidy caps would have no impacts on farm families in poverty but would save American taxpayers millions of dollars by reducing wasteful payments to the crop insurance industry and wealthy farms, farm households, and landowners.

Vincent H. Smith is Professor of Economics in the Department of Agricultural Economics and Economics at Montana State University and co-director of MSU’s Agricultural Marketing Policy Center.



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